MATH CLASS 8

GOBC • Mortgage Notes

RAM, IRD, Book value, Safety Margin, Total Value Paid, Final Pmt,
APR, Balloon Pmt, Stress Test, Interest Cost, Variable OSB & Pmt,
Interest Adjustment

www.GOBCrealestate.com
 MATH CLASS 8

Safety Margin
represents a % of NOI (Income) that must be set aside to ensure that the
NOI can cover the mortgage payments.
Safety Margin
Example: ensures that the NOI can cover the
if a lender set a 20% safety margin. mortgage payments by expressing the
the maximum mortgage payments cannot exceed 80% of NOI.
margin between the NOI and mortgage
100% - 20% = 80%
payments as a percentage of NOI

M8.6 A company is looking to receive a second mortgage on its business offices. The lender requires a safety margin of 20%. The
outstanding balance of the first mortgage is $4,042,651 and monthly payments are $28,791.30. The company’s annual net operating
income is $650,000. Calculate the maximum monthly payment available for the second mortgage using the income constraint
(1) $14,542.03
(2) $43,333.33
(3) $28,791.30 STEP1: Find Maximum PMT
(4) $520,000 PMT= Income × DSR (Debt Service Ratio)
$650,000 × (100%- 20%) = $520,000 (Annual Payment)
$520,000 ÷ 12 = $43,333.33 (Maximum Monthly Payments)

STEP 2: 2nd mtg PMT amount = total payment - 1st mortgage pmt

$43,333.33 - $28,791.30 = $14,542.03

M8.7 A business is seeking to obtain a second mortgage on its commercial property. The lender demands a safety margin of
30%. The balance on the mortgage is $2,000,000 and the monthly payments are $15,000. The company’s annual net operating
income is $500,000. What is the maximum monthly payment available for the second mortgage using the income
constraint?

(1) $15,000.00
(2) $14,166.67 STEP1: Find Maximum PMT
(3) $29,166.67
PMT= Income × DSR (Debt Service Ratio)
(4) $0

STEP 2: 2nd mtg PMT amount = total payment - 1st mortgage pmt

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 MATH CLASS 8
M8.8 A corporation is looking to secure a second mortgage on its office building. The lender requires a safety margin of 40%. The
outstanding balance of the first mortgage is $750,000 and the monthly payments are $7,500. The company’s annual net operating
income is $360,000. What is the maximum monthly payment available for the second mortgage using the income constraint?

(1) $7,500 STEP1: Find Maximum PMT

(2) $15,000 PMT= Income × DSR (Debt Service Ratio)
(3) $16,250
(4) $10,500

STEP 2: 2nd mtg PMT amount = total payment - 1st mortgage pmt

Book Value Book Value of a Mortgage

The purchase price of that asset less any The amount of principal outstanding (OSB) on a
depreciation taken to date. mortgage loan at any particular point in time.

M8.9 What is the book value of a 1-year-old car loan for $35,000 with a 60-month amortization period, 5-year contractual term,
monthly payments rounded up to the next higher dollar, and interest at 4% per annum, compounded monthly?

(1) 28,542.46 Step 1. Find PMT, round up, plug in

N 5#N (60) J12 = 4
(2) 28,547.59
IYR PMT = 12
(3) 28,665.10 PV 35,000 do NPEPN 4.0000..
(4) 28,452.45 PMT
FV 0+/-
#PYR

Step 2. Find Book Value after 1 year

How much does the car with after one year
1#N ---> FV = = -28,542.465… = Book value

M8.10 Squeaky Ltd. took out a $200,000 loan to finance the purchase of equipment for its business two years ago. The loan had an
interest rate of 6% per annum, compounded quarterly over a 30-year amortization period. The loan had a contractual term of 5
years and monthly payments. The current interest rate for loans of this type is 3% per annum, compounded quarterly. What is the
book value of the loan today?

(1) $194,909.01 N
(2) $6,353.14 IYR
(3) $186,040.15
(4) $154,980.41 PV

PMT

FV

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 MATH CLASS 8

RAM- Reverse Annuity Mortgage

Ø allows a means by which the equity rich mortgagor may
postpone selling his house
Ø PV and FV will be reversed

M8.11 The Chong’s are retired and have decided to supplement their income. Their home has a market value of $468,000. They
have approached the bank to receive a reverse annuity mortgage (RAM). The terms of the mortgage specify an interest rate of 5%
per annum, compounded monthly. The bank decides that the RAM cannot exceed 50% of market value. The borrower receives
$800 per month. How many full payments will be received during the term of the loan?

(1) 192 N
(2) 190
(3) 191 I/YR 5
(4) 189
PV 0 +/-

PMT 800 +/-

FV 234,000

#PYR 12

Press N = 191.6647… = 191 full payments

M8.12 A reverse annuity mortgage has been created to improve Albert Montague’s income. Albert receives $1,456 per
month based on security of a $255,000 home. The outstanding balance on the loan, which is written at J2 = 8%, cannot
exceed 65% of the market value of the home at the time the loan was written. The contractual term of this loan:

(1) must not exceed 85 months

(2) must not exceed 107 months
(3) must not exceed 113 months N
(4) cannot be determined IYR

PV

PMT

FV

#PYR

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 MATH CLASS 8 RAM CONTINUE

M8.13 Kate has taken out a reverse mortgage, based on the security of her $450,000 home. The loan is written at 7.75%
per annum, compounded annually over a 5-year term. The outstanding balance is not to exceed 30% of the market value
of the home at the time the loan was written. What is the monthly amount Kate will receive under the reverse
mortgage?
(1) $1,861.97
(2) $1,855.21 N
(3) $1,842.26
(4) $1,810.11 IYR

PV

PMT

FV

#PYR

M8.14 A reverse annuity mortgage has been created to improve a borrower’s monthly income based on the security of a
$400,000 home. The loan is written at 6% per annum, compounded monthly over a 10-year term. The outstanding
balance is not to exceed 25% of the market value of the home at the time the loan was written. What is the monthly
amount the borrower will receive?

(1) $612.65
N
(2) $343.86
(3) $1,110.21 IYR
(4) $610.21
PV

PMT

FV

#PYR

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 MATH CLASS 8

INTEREST COST

M8. 15 Josie Purchaser arranged a mortgage loan for $175,500 at 9.25% per annum, compounded semi-annually, with a 25-year
amortization period and monthly payments. What is her interest cost for the …?

15A- first month?

15B- second month?

____ INPUT _____ # Amort =. =

15C- first year? ____ INPUT _____ # Amort =. =

15D- second year? ____ INPUT _____ # Amort =. =

M8.16 Alice borrowed $80,000 for a mortgage loan at an annual interest rate of 4.5%, compounded monthly, with a 30-
year amortization period and monthly payments. What is the interest cost for the first year of the loan?

(1) $1,290.60
(2) $3,573.60 N
(3) $105.35
(4) $300.00 IYR

PV

PMT

FV

#PYR

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 MATH CLASS 8
OPEN vs. CLOSED
Term 5+ years
Open mortgages generally have short terms, higher rates. Allows
prepayment at any time! Under Interest Act,

Closed mortgages, cannot repay the outstanding balance (OSB) during borrower has a right to prepay ALL of the
the term. outstanding debt at any time after 5 years
However, lenders typically allow prepayment of the remaining from initiation of the mortgage with
outstanding balance but charge:
- a penalty of three months' interest 3 months penalty
OR
- the interest rate differential (IRD) on
the amount to be prepaid

3 MONTHS PENALTY
M8.17 Mortgage of $125,000 at J2 = 11.25% for 20 amortization, 5-year term and monthly PMT. The mortgage contract permits the
borrower to prepay the full amount of the loan at any time subject to the payment of 3 month’s interest penalty. Payments are
rounded up to the next higher dollar. At the time of prepayment, the current comparable interest rate is J2 = 8% If the borrower
wishes to prepay at the end of 1st year, calculate the amount of the penalty.

M8.18 A mortgage for $200,000 is written at 6% per annum, compounded semi-annually. The mortgage calls for monthly payments
rounded up to the next higher dollar, a 5-year term, and a 20-year amortization. The mortgage contract permits the borrower to
prepay the full amount of the loan at any time subject to the payment of a three months' interest penalty. At the time of
prepayment, the current comparable interest rate is 4% per annum, compounded semi-annually. If the borrower wishes to prepay
this loan at the end of the 2nd year (with the 24th payment), calculate the amount of the three months' interest penalty.
(1) $969.01
(2) $2,883.27 N
(3) $2,798.52
(4) $2,883.28 IYR

PV
PENALTY CONTINUE
PMT

FV

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 MATH CLASS 8

IRD- Interest Rate Differential a penalty of three months' interest or the interest rate
differential (IRD) on the amount to be prepaid.

M8.19 Your client has a mortgage for $500,000 written at 6% per annum, compounded semi-annually. The mortgage has a 5-year
term and a 30-year amortization period and monthly payments. If the client wishes to prepay the loan at the end of the 2nd year
with the 24th payment and the current comparable interest rate is 5% per annum, compounded semi-annually, what is the amount
of the interest rate differential prepayment penalty?
(1) $19,446.36 -how much time is left on the 5 yr term? 3 yrs of term left
(2) $17,501.72 = 36 months. ____2_______5T
(3) $14,584.77
(4) $1,215.40

M8.20 A mortgage for $225,000 is written at 6.5% per annum, compounded semi-annually. The mortgage calls for monthly
payments, a five-year term, and a 20-year amortization. The mortgage contract permits the borrower to prepay the full amount of
the loan at any time subject to the payment of a penalty, which is the greater of a three months’ interest penalty or the interest rate
differential. Payments are rounded up to the next higher dollar. At the time of prepayment, the current comparable interest rate is
3.5% per annum, compounded semi-annually. If the borrower wishes to prepay this loan at the end of the first year (with the 12th
payment), calculate the amount of the payout penalty.
(1) $3,515.66 -how much time is left on the 5 yr term? 4 yrs of term left
(2) $14,062.64 N = 48 months. ____1_______5T
(3) $5,687.99
(4) $26,148.25 IYR

PV

PMT

FV

#PYR

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 MATH CLASS 8 PENALTY CONTINUE

M8. 21 A mortgage for $300,000 is written at 6.5% per annum, compounded monthly. The mortgage calls for monthly payments
rounded up to the next higher dollar, a 5-year term, and a 25-year amortization. The mortgage contract permits the borrower to
prepay the full amount of the loan at any time subject to the payment of an interest rate differential penalty. At the time of
prepayment, the current comparable interest rate is 4.5% per annum, compounded monthly. If the borrower wishes to prepay this
loan at the end of the second year (with the 24th payment), calculate the amount of the interest rate differential penalty.
(1) $1,448.76
N -how much time is left on the 5 yr term? 3 yrs of term left
(2) $17,385.12
(3) $14,708.47 IYR = 36 months. ____2_______5T
(4) $23,180.16
PV
PMT
FV
#PYR

TOTAL VALUE PAID Total Value Paid by the Borrower Total Value Received

money paid or to be paid by the borrower to the

lender

1. PMT (use Face value as PV)

2. Interest for the entire term ______T____
3. PV + Interest = Total Value Paid

M8.22 You are arranging a partially amortized mortgage loan with the face value of $300,000 for your client. The loan contract is to
be written at 6% per annum, compounded semi-annually. With the monthly payments, an amortization period of 20 years and term
of 5 years. A brokerage fee of $5,000 will be deducted from the face value of the loan. Under the BPCPA, what is the total value
paid be the borrower?

(1) $128,194.20
(2) $368,417.67
(3) $382,582.38
(4) $276,205.77

M8.23 You are arranging a partially amortized mortgage loan with a face value of $150,000 for your client. The loan contract is to be
written at 3% per annum, compounded quarterly, with monthly payments, an amortization period of 10 years and term of 2 years. A
brokerage fee of $2,000 will be deducted from the face value of the loan. Under the Business Practices and Consumer Protection
Act, what is the Total Value Paid by the borrower?
N
(1) $157,831.21 IYR
(2) $8,193.87 PV
(3) $158,224.79
(4) $8,224.79 PMT
FV
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 MATH CLASS 8

Under BPCPA
TOTAL COST OF CREDIT Total COST of CREDIT

› the anticipated dollar cost of the mortgage loan to the borrower, over its term.

M8.25 The Business Practices and Consumer Protection Act defines the Total Cost of Credit:

(1) The anticipated dollar cost of the mortgage loan to the borrower, over its term
(2) The average outstanding principal over the term of the loan
(3) The amount paid or to be paid by the borrower to the lender
(4) The total cost of credit divided by the length of the term expressed in years

APR- Annual Percentage Rate Calculate the APR

The BPCPA (Business Practices & Consumer Protection Act) requires that APR = (100 X C)
mortgage brokers and lenders: (T X P)
› must give disclosure to individuals who borrow for primarily
personal, family, or household purposes, regardless of whether C- Total Cost of Credit
the broker or lender is charging additional fees or expenses.
T – terms in YEARS
› must disclose to the borrower the Annual Percentage Rate
(APR)- the contractual interest rate plus any non-interest P – Average Outstanding Principal
finance charges, calculated with a specified formula.
› must give a disclosure statement to a borrower two days prior
to the borrower incurring an obligation under a credit
agreement, unless waived by the BORROWER.
› The BPCPA does not prescribe the use of a specific form

M8. 26 Glen is a mortgage broker arranging a mortgage loan with a face value of $475,000. He has calculated the total cost of
credit to the borrower will be $120,000, and the average outstanding principal over the 5 year term of the loan (P) will be
$462,500. What is the Annual Percentage Rate (APR) that Glen must disclose on the disclosure statement?
Note: APR = (100 X C) / (T X P) (1) 7.91666666666%
(2) 8.6021553763%
(3) 5.18918918a919%
(4) 20.5405405405%

M8.27 You are arranging a mortgage loan with a face value of $ 575,000. You have calculated that the Total Cost of Credit to the
borrower will be $220,000, and the average outstanding principal over the 4-year term of the loan (P) will be $562,500. What is the
Annual Percentage Rate (APR) that you must disclose on the disclosure statement? Note: APR = (100xC)/ (T x P)
(1) 9.777778%
(2) 7.822222%
(3) 5.189189%
(4) 6.392025%

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 MATH CLASS 8
FINAL PAYMENT
M8.28 If payments are rounded up to the next higher dollar, the MOST likely result is:
(1) an increase in the cost to the borrower.
(2) a higher yield to the lender.
(3) a lower final payment.
(4) an increase in the number of payments.

M8.29 A $116,000 mortgage has an interest rate of 5% per annum, compounded semi-annually. It calls for monthly payments
sufficient to amortize the loan over a 25-year period. If payments are rounded up to the next higher $10, what is the amount of the
final payment required to fully amortize the loan?

(1) $475.12
(2) $267.87
(3) $268.97
(4) $321.24

M8.30 A loan in the amount of $275,000 is to be fully amortized by level monthly payments over 20 years. Interest on the loan is
3.75% per annum, compounded semi-annually and the monthly payments are to be rounded up to the next higher dollar. Calculate
the required final payment to fully amortize the loan.

N
(1) $248.68
(2) $1,622.91 IYR
(3) $1,378.31
(4) $1.377.61 PV

PMT

FV

#PYR

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 MATH CLASS 8 FINAL PAYMENT CONTINUE

M8.31 Your client is considering borrowing $170,250 to purchase a new house. The loan is to be repaid over 25 years with quarterly
payments at an interest rate of 11.5%, compounded quarterly. Assuming that the payment is rounded up to the next higher $100,
what is the amount of the final payment?
N
(1) 987.09
(2) 865.92 IYR
(3) 3,718.31
(4) 1,618.52 PV

PMT

FV

#PYR

M8.32 Your client is considering borrowing $180,000 to purchase a new house. The loan is to be repaid over 20 years by monthly
payments at an interest of J1 = 7%. Assuming that the payment is rounded up to the next higher dollar, what is the amount of the
final payment?
N
(1) $1,068.76
(2) 304.24 IYR
(3) 3,718.31
(4) 1,618.52 PV

PMT

FV

#PYR

M8.33 With fully amortized constant payment mortgages, when payments are rounded up to the next higher dollar, the numbers of
payments necessary to repay the loan amount:

(1) will always increase in addition to increasing the size of the final payment.

(2) may decline in addition to reducing the size of the final payment.

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 MATH CLASS 8
INTEREST ADJUSTMENT Interest adjustment period

the period of time between the date of funds are

advanced and the beginning of the first payment period.

M8.35 XYZ company has arranged a mortgage in the amount of $120,000. The loan is to commence on May 1, but the
funds will be advanced on April 18. The interest rate on the mortgage is 4% per annum, compounded semi-annually.
What is the interest adjustment payment that is due on May 1? Assume that it is not a leap year.

(1) $169.39
(2) $182.15
(3) $179.64
(4) $197.21

M8.36 Joe Adjustment has arranged for a mortgage in the amount of $260,000, at a rate of 4.75% per annum,
compounded semi-annually. It is to be fully amortized over 20 years by constant monthly payments. The funds are to be
advanced on January 20, with monthly payments commencing on March 1. Calculate the interest adjustment payment
due on February 1, if $260,000 is advanced on January 20. Assume that it is NOT a leap year.

(1) ((1) $368.10 N

(2) $257.89 IYR
(3) $401.59
(4) $559.93 PV

PMT

FV

#PYR

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 INTEREST ADJUSTMENT CONTINUE
MATH CLASS 8
M8.37 The buyer of a property has arranged for a $275,000 mortgage loan at 8% per annum, compounded semi-
annually. Payments are to be made monthly commencing July 1. Full funds are advanced May 17. Calculate the size of
the interest adjustment payment due on June 1. Assume that it is NOT a leap year.

(1) $825.45 N
(2) $852.14 I_______________I________________I
IYR
(3) $887.93 PV FV Pmt
(4) $885.06 PV Completion Loan starts 1st pmt
PMT

FV

#PYR

M8.38 A $100,000 loan is advanced on September 13. What will be the interest adjustment due on September 15 of the
same year if the rate of interest charged is 6% per annum, compounded quarterly? Assume that it is NOT a leap year.

(1) $32.64 N
(2) $48.96 I_______________I________________I
IYR
(3) $39.21 PV FV Pmt
(4) $43.27 PV
Completion Loan starts 1st pmt
PMT

FV

#PYR

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 MATH CLASS 8 INTEREST ADJUSTMENT CONTINUE

M8.39 A buyer of a residential property borrows $163,500 at j2 = 6%. The loan will be fully amortized over 15 years with
monthly payments. The first monthly payment is due on May 1. What amount will be advanced on March 21 if the
borrower is to owe the face value of $163,500 on April 1? Assume that it is NOT a leap year.

(1) $163,208.96 N
(2) $163,818.09 I_______________I________________I
IYR
(3) $163,789.22
PV FV Pmt
(4) $163,182.53 PV
Completion Loan starts 1st pmt
PMT

FV

#PYR

M8.40 Amy has arranged a mortgage in the amount of $86,500 at an interest rate of 9.5% per annum, compounded
semi-annually, with HP Finance Co. The first monthly payment is to be made on June 1. However, the closing date of the
sale is April 11. If HP Finance Co. agrees to advance Amy less than the loan amount so that it accumulates interest over
the adjustment period equal to the loan amount, how much money will Amy be advanced on April 11? Assume that it is
NOT a leap year.

(1) $86,061.21 N I_______________I________________I

(2) $86,941.03
IYR PV FV Pmt
(3) $86,083.10
(4) $86,963.14 Completion Loan starts 1st pmt
PV

PMT

FV

#PYR

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 MATH CLASS 8
VARIABLE RATE MORTGAGES
M8.41 Kevin and Sara are looking to buy their first home in Salmon Arm. They have been saving money for a long time but will need
a mortgage loan to help with the purchase. They believe that the current interest rates will decrease in the future. Given the
information presented, which of these mortgage options would be most appropriate to recommend in this situation?
(1) Graduated Payment Mortgage
(2) Variable Rate Mortgage
(3) Reverse Annuity Mortgage
(4) Sinking Fund Assisted Mortgage

M8.42 A $400,000 variable rate mortgage was written at 5% per annum, compounded semi-annually, to be fully amortized over 25
years with monthly payments rounded to the next higher dollar. The mortgage contract specified that the interest rate could be
adjusted, on each anniversary of the mortgage to the current market rate. Two years later, the market rate decreased to 4% per
annum, compounded semi-annually. Calculate the required payments, rounded to the next higher dollar, after the second year,
assuming the amortization period is not to be extended and the contract allows variable payments.

M8.43 A $600,000 variable rate mortgage was written at 4% per annum, compounded semi-annually, to be amortized over 20 years
with monthly payments rounded to the next higher dollar. The mortgage contract specified that the interest rate could be adjusted,
on each anniversary of the mortgage, to the current market rate. Two years later, the market rate decreased to 3% per annum,
compounded semi-annually. Calculate the required payments, rounded to the next higher dollar, after the second year, assuming
the amortization period is not to be extended and the contract allows variable payments.

N N
IYR IYR
PV PV
PMT PMT
FV FV
#PYR #PYR

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 MATH CLASS 8 VARIABLE RATE CONTINUE

M8.44 Your client has applied for a $500,000 closed variable rate mortgage. The interest rate to be changed on this loan will be at
the prime rate plus 1%. The current prime rate is 4% per annum, compounded semi-annually. The borrower will make monthly
payments rounded up to the next higher cent on a 20 year amortization period and a 5 year term. Interest rate adjustments will be
made annually on the anniversary date of the mortgage. If the prime rate decreases to 2.5% at the end of year 1, what will the
outstanding balance owing on this loan be at the end of year 2?

M8.45 Your client has applied for a $100,000 closed variable rate mortgage. The interest rate to be charged on this loan will be at
the prime rate plus 1% The current prime rate is 3% per annum, compounded semi-annually. The borrower will make monthly
payments rounded up to the next higher cent on a 25-year amortization period and a 5-year term. Interest rate adjustments will be
made annually on the anniversary date of the mortgage. If the prime rate decreases to 2% at the end of year 1, what will the
outstanding balance owing on this loan be at the end of year 2?

N
N

IYR IYR

PV
PV
PMT
PMT
FV
FV
#PYR
#PYR

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 MATH CLASS 8
Balloon Payments

BALLOON PAYMENTS Any payment of Principal over and above the regular periodic
payments, whether it occurs during or at the end of the loan term

M8.47 A balloon payment is any payment of:

(1) interest over or above regular interest payments, but only when it occurs during the term of the loan
(2) principal over and above the regular payments, whether it occurs during or at the end of the loan term
(3) principal over and above the regular periodic payments, but only when it occurs at the end of the loan term
(4) interest over and above regular interest payment, whether it occurs during or at the end of the loan term

M8.48 Mark takes out a mortgage for $450,000 at an interest rate of 5% per annum, compounded semi-annually. The loan will be
amortized over 20 years. The term of the contract is 10 years and payments will be made monthly. The mortgage allows additional
payments of the principal at any point without penalty. Calculate the outstanding balance after 10 years if the borrower makes
balloon payments of $10,000 at the end of Years 1 and 6. To reflect the impact of the additional payments, assume the payments
will remain the same while the amortization period adjusts.

M8.49 Lena takes out a car loan for $60,000 at an interest rate of 4.5% per annum, compounded monthly. The loan will
be amortized over 10 years. The term of the contract is 5 years and monthly payments. The car loan allows additional
payments of the principal at any point without penalty. Calculate the outstanding balance after 5 years if the borrower
makes a lump sum payment of $5,000 at the end of Year 1 and an additional $3,000 at the end of Year 3. To reflect the
impact of the additional payments, assume the payments will remain the same while the amortization period adjusts.

IYR

PV

PMT

FV

#PYR

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 BALLOON CONTINUE
MATH CLASS 8
M8.50 Tom takes out a personal loan for $150,000 at an interest rate of 8% per annum, compounded quarterly. The loan will be
amortized over 25 years. The term of the contract is 6 years with monthly payments, rounder up to the next higher dollar. The
personal loan allows additional payments of the principal at any point without penalty. Calculate the outstanding balance after 6
years if the borrower makes an additional payment of $5,000 at the end of Year 1 and Year 4. To reflect the impact of the additional
payments, assume the payments will remain the same while the amortization period adjusts.

IYR

PV

PMT

FV

#PYR

SINKING FUND ASSISTED MORTGAGE SFAM

a loan repayment plan which reduces the amount of

the initial payments in order to improve affordability.

M8.51 Assume a sinking fund assisted mortgage (SFAM) is being employed and the down payment required is 10% of the $892,000
market value of the house. If the face value of the loan is $843,400, what is the amount of the deposit that will initially be set aside
in the sinking fund?
Step 1. Find Downpayment
(1) $40,600 892,000 x 10% = $89,200
(2) $55,300
Step 2. Find Loan amount advanced
(3) $48,600 $892,000 - $89,200 = $802,800
(4) $52,300
Step 3. Find SF deposit
$843,400 - $802,800 = $40,600

M8.52 For a sinking fund assisted mortgage (SFAM) on a property worth $1,200,000, the down payment required is 15% of the
market value. If the face value of the mortgage loan is $1,080,000, determine the initial deposit amount that will be placed in the
sinking fund.

(1) $68,000
(2) $60,000
(3) $18,000
(4) $120,000

©2023/2024 GOBC Training LTD 129

 MATH CLASS 8
M8.53 A borrower has arranged a sinking fund assisted mortgage (SFAM) at a rate of 6% per annum, compounded monthly. This
loan will be amortized over 25 years, a 5-year term, and monthly payments. The face value of the mortgage is written at $250,000
and the amount advanced to the borrower is $200,000. The amount of the bonus deposit ($50,000) is placed in an interest-bearing
account at a rate of 2.5% per annum, compounded monthly. Constant monthly withdrawals will be made over the 5-year period,
which will deplete the fund. Calculate the amount of the SFAM payment and the monthly withdrawal

(1) $1,610.75 and $887.37 respectively

(2) $1,288.61 and $1,013.82 respectively
(3) $1,319.92 and $882.69 respectively
(4) $1,849.89 and $329.98 respectively

ADDITIONAL FUNDS
M8.55 A borrower wants to obtain additional mortgage funds by adding a second mortgage. The borrower’s annual income is
$90,000. The borrower is currently making payments of $1,600 per month and will continue to make those payments for 12 more
years. Based on a 30% GDS, the maximum annual payment is $25,000 (after annual property taxes of $2,000). The current interest
rate is J12= 5% . Calculate the maximum amount of additional funds that can be acquired (rounded to the nearest dollar) with a
second mortgage where the second mortgage rate is 9% per annum, compounded monthly. Assume that the maximum second
mortgage payment is the differential payment over a 20-year amortization.
N
(1) $11,912
(2) $61,912 IYR
(3) $53,720
(4) $125,683 PV

PMT

FV

#PYR

M8.56 A borrower wants to obtain additional mortgage funds by renegotiating the first mortgage. The current outstanding balance
on the borrower’s loan is $175,000. The borrower is currently making payments of $1,500 per month and there are 12 years
remaining in the existing first mortgage. Based on a 30% gross debt service ratio, the maximum annual payment is $28,000 (after
annual property taxes of $2,000). The current interest rate is 4.5% per annum, compounded monthly. New funds will be charged at a
rate of 6% per annum, compounded monthly. Any new funds will be calculated based on a 20-year amortization. Calculate the
maximum amount of additional funds that can be acquired (rounded to the nearest dollar) with a new first mortgage where the
penalty for prepayment is $3,500
N
(1) $241,791
(2) $91,155 IYR
(3) $147,188
(4) $269,437 PV

PMT

FV
©2023/2024 GOBC Training LTD 130
#PYR